Accounting vs Economic Profit
 Accounting profit= Total revenue – Explicit cost
 Economic profit = Total revenue- Economic cost
Economic cost= Explicit cost+ Implicit cost
2-2
Copyright © 2014 by the McGraw-Hill
Companies, Inc. All rights reserved.
Accounting vs Economic Profit
Jaynet spends $30,000 per year on painting supplies
and storage space. She recently received two job offers
from a famous marketing firm---one offer was for
$110,000 per year, and the other was for $80,000.
However, she turned both jobs down to continue a
painting career. If Jaynet sells 25 paintings per year at a
price of $8,000 each:
a) What are her accounting profits?
b) What are her economic profits?
Example
 a. Total Revenue =P*Q=$8,000*25=$200, 000
Explicit cost=$30,000
Accounting profit=$200,000-$30,000=$170,000
 b. Implicit cost=Opportunity Cost=$110,000
Economic profit =$200,000-($30,000+$110,000)
=$200,000-$140,000
=$60,000